Earnings reports can cause price swings in both directions, and some savvy investors anticipate upward trends by buying stocks in the days leading up to a company's latest report. Even more attractive to buyers is an stock trading well below its lowest target price, suggesting an undervalued company that can be picked up on the cheap.
The list below features three stocks considered undervalued relative to analysts price expectations, which institutional investors are buying before they release their next round of earnings reports.
To build this list we first screened for stocks selling at prices below analyst targets, limiting our universe to companies with earnings reports coming out next week. We specifically searched for potential upside of at least 15% based on the lowest target price.
We use the lowest target price because analyst prices tend to be inflated, and we only included companies with at least five analyst target prices to ensure a variety of opinions.
Finally, we looked for an increase in buying from institutional investors, with significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that hedge fund managers and mutual fund managers expect the upside, and that these stocks could prove the analyst targets are correct.
For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.
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Do you agree with institutional investors' decision to invest? Use this list as a starting point for your own analysis.
1. Corrections Corporation of America (CXW): Operates privatized correctional and detention facilities in the United States.Market cap at $3.61B, most recent closing price at $35.75. Of the 5 analysts that have set a target price on the stock, the lowest price target stands at $43. This implies a potential upside of 20.28% from current levels around $35.75. Net institutional purchases in the current quarter at 14.4M shares, which represents about 14.53% of the company's float of 99.09M shares. Earnings date: 05/08/13. The top three holders of the stock are The Vanguard Group, Inc., FMR LLC and Marcato Capital Management LLC.
2. Walter Investment Management Corp. (WAC): Operates as a mortgage portfolio owner and mortgage servicer, specializing in sub prime, non-conforming, and other credit challenged residential loans primarily in the southeastern United States.Market cap at $1.19B, most recent closing price at $32.17. Of the 7 analysts that have set a target price on the stock, the lowest price target stands at $38. This implies a potential upside of 18.12% from current levels around $32.17. Net institutional purchases in the current quarter at 11.0M shares, which represents about 33.38% of the company's float of 32.95M shares. Earnings date: 5/06/13. The top three holders of the stock are FMR LLC, New South Capital Management Inc. and Amici Capital, LLC.
3. RDA Microelectronics, Inc. (RDA): Designs, develops, and markets radio-frequency and mixed-signal semiconductors for cellular, broadcast, and connectivity applications.Market cap at $75.91M, most recent closing price at $9.43. Of the 8 analysts that have set a target price on the stock, the lowest price target stands at $11. This implies a potential upside of 16.65% from current levels around $9.43. Net institutional purchases in the current quarter at 3.0M shares, which represents about 11.92% of the company's float of 25.16M shares. Earnings date: 05/07/13. The top three holders of the stock are Warburg Pincus LLC, Federated Investors, Inc. and Morgan Stanley.
* Institutional data sourced from Fidelity, target price data sourced from Thomson/First Call (via Yahoo! Finance), all other data sourced from Finviz.
Written by Emily Smykal